We decided to write this book because we wanted to stimulate a discussion about the relationships among taxation, the contemporary character of the welfare state, and the change in the social order of societies like the United Kingdom from industrial to post-industrial in their economic base. We had earlier identified the data series ‘Effects of Taxes and Benefits on UK Household Income’ as one which provided important information on the way taxation, benefits in cash and benefits in kind come together to determine the resources available to households. We were members of the group which wrote In Place of Cuts: Tax Reform to Build a Fairer Society (2009). This argued that the austerity programme being adopted in response to the financial crisis of 2008 was flat wrong in that it would reduce economic welfare and increase inequality. Subsequently the coalition government elected in 2010 was able to assert a narrative which blamed the increasing fiscal deficit, the gap between the revenue raised from taxation and government expenditure – on overgenerous spending on all forms of social provision under Labour governments since 1997. New Labour did little to refute this assertion although of course the deficit was in fact largely a product of support for the financial institutions which had caused the economic collapse.
In this context we thought it necessary to look to what the social sciences might have to tell us about the issues these changes pose for politics and policy. First we turned to the problems posed by the transition of societies like the United Kingdom – the world’s first industrial nation – from an industrial to a post-industrial character. Second we drew on the complexity frame of reference which understands systems as having emergent characters which derive from the interaction of their component sub-systems, which themselves are usually complex in their own right. The direction of causation is always recursive and causes are multiple. So the transition from an industrial to a post-industrial social order has had profound implications for the tax system and the character of welfare states, but political decisions about the forms of the tax system have been themselves drivers of the post-industrial transformation. They have enabled the domination of finance capital and the massive expansion of the political power of both global corporations and the global super rich. These changes have been reinforced by the development of a concierge class of legal and financial professionals who themselves have very high incomes and operate to influence public policy and political debate. These groups have a grossly disproportionate influence on supposedly democratic politics.
We started by going back to James O’Connor’s seminal The Fiscal Crisis of the State (1973) – a Marxist political economy analysis of the relationships among taxation, state expenditure, and the economic system. O’Connor wrote this great book in relation to industrial capitalism. His major contribution was to distinguish between state expenditures which are functional for capital accumulation and those which represent a political charge imposed on that accumulation so that capitalism can accommodate the pressures for social redistribution which in mass democracies. In industrial capitalism a great deal of expenditure was functional for capitalism, either as direct aid – what we now call corporate welfare – or because it reduced the costs of providing labour power to the production process. We wanted to explore the implications of the new globalized system of production for the welfare capitalisms of post-industrial nation states.
We draw extensively on several other analyses which are useful – Blyth’s analytical examination of the use of Austerity as an ideological narrative (2013), Crouch’s account of the nature of post-democratic politics (2000) in which minimal differences among parties mean that business interests and arguments dominate policy formation, and Streeck’s (2013) understanding of the politics of public debt and the emergence of ‘the consolidation state’ where debtors dominate fiscal policy against the interests of citizens and the funding of social provision. We set all this in relation both to the impact of taxation and spending on household inequalities and the politics of taxation. The politics of taxation includes all the issues of avoidance and evasion but also the detailed form of tax systems themselves. We examine all of this in relation to the historical development of tax systems, primarily for the United Kingdom but also with reference to other welfare capitalist democracies.